There are several approaches
to assess sustainability of a country’s public finance. Ricardian
Equivalence (RE) is one such approach, in which fiscal sustainability (FS)
is defined in terms of neutrality of generational welfare by government
fiscal policy. The present work is an attempt to discuss and analyze the FS
of India in the context of RE. Different forms of empirically testable
equations for testing RE are derived based on studies by Buiter and Tobin
(1978), Kormendi (1983) and Kormendi and Meguire (1990). Based on
availability of data, the empirical evidences are against the RE hypothesis,
and hence the fiscal policy pursued during the study period (1974-2011) had
been detrimental to generational welfare neutrality. One of the key aspects
of FS is to ensure generational equity as reflected in the Fiscal
Responsibility and Budget Management (FRBM) Act, 2003 in India. However, the
empirical findings convey that fiscal policy had been unsustainable in the
terms of generational equity in India.